Horváth Innovation Insights

From Concept to Digital Banking with the Beyond Banking Ecosystem

The classical banking world is in a state of radical change. Interest rates are low, earnings are dwindling, "challenger banks" are occupying the customer interface. How can traditional players remain relevant in this sector? With lifestyle banking! Below, you can find out how it works.

Lifestyle-Banking – How Established Banks can Re-Invent Themselves

Imagine: You could see at a glance, anytime and anywhere, exactly how much money you have available – on all accounts and all cards. Or, you could tell exactly how much is withdrawn from you each month with your electricity, gas or Internet provider due to an overpriced contract. For each wish, you could create a separate savings target and save up automatically. All your vouchers could be managed centrally so that you can shop at your favorite shop at a reduced price, instead of letting them expire since you forgot about them. What you have just imagined is called lifestyle banking. An offer that suits your individual life.

Sound good? It already exists. The experts at Horváth & Partners have received an exciting assignment. In cooperation with COMECO GmbH & Co. KG, Horváth & Partners developed and implemented this exact approach. Before we dive into the colorful world of lifestyle banking, let's take a quick look at the - not so rosy - status quo of the banking industry.

The banking landscape in upheaval

Since the financial crisis of 2008, interest rates, one of the main sources of income for banks, have fallen to record lows, to the point of negative interest rates on deposits. As if that was not enough, established banks are also having to contend with stagnating or shrinking customer bases. This is because new, rigorously digital providers, so-called "challenger banks", are increasingly succeeding in occupying the customer interface: through better cost structures and attractive new functions.

And it is not stopping. As part of the harmonization of consumer protection, the EU has pushed through the PSD II directive to establish equal competition conditions between payment service providers and users. Through this, non-banks are now also able to query and use transaction data and other financial figures from banks on behalf of the customer. Companies, such as the German Lufthansa Group with its new "Finance Plus" app, suddenly become new contestants in the highly competitive banking market. The "Finance Plus" app uses the PSD II interface to display information about the user's accounts and his Miles&More credit card. Miles can be collected via various promotions and redeemed in the Miles&More shop or as flight award offers.

Joining forces to break new ground

All these developments are massively increasing competition and putting pressure on the established banks to innovate. This also applied to the Sparda banks, who desired to oppose this scenario with an innovative strategy.

From March to May 2018, a short preliminary study was conducted to determine how a cooperative bank should position itself in the changing market. As a result, the vision was to inspire customers with smart features and to employ the PSD II interface as a driver of an ecosystem in order to achieve a sustainable competitive advantage.

COMECO, a fintech start-up company founded for this purpose, was able to capture seven Sparda banks as its first investors and commissioned Horváth & Partners to orchestrate the various implementation partners as well as to support in setting up the company.

Innovations and new, promising revenue models outside the existing structures, are developed to market maturity quickly and in a customer-centric manner through this fintech. COMECO stands for "COMmunity ECOsystem" and aims to establish a leading ecosystem in Europe by 2025 - with a portfolio based on online banking.

With TEO, the fintech is launching its first product: an open banking platform with a beyond banking ecosystem. Here, products from non-financial partners are offered in addition to the ones of banks. After a successful beta test until December 2019, the app was launched in the App Store in January 2020. The Sparda banks were the first client to implement TEO and now offer their banking customers this financial platform.

Smart Features

TEO has been equipped with innovative functions from the start; others are constantly being activated. A small excerpt:

Financial Weather: see at a glance how the financial "general weather situation" is

Stories: address customers in a targeted manner with tailor-made stories

Marketplace: find suitable offers for every occasion

Vouchers: always a discount at hand thanks to vouchers

Picture of the vouchers

This addresses a wide range of customer needs, which previously have mostly disappeared under the radar at banks.

An example: TEO helps with saving buckets to keep track of individual savings goals in a simple and playful way. The best thing is: The money remains in the selected account the whole time. By simply splitting the money between different buckets and saving it over several weeks, money is put aside in a lively way. This allows you to virtually allocate money to the long-awaited far-distance holiday or iPad.

Thanks to vouchers, discounts of 3-15% are always available. From over 25 partners – from About You to Tchibo to Galeria Kaufhof – vouchers can already be purchased at TEO and redeemed online and offline. Via the marketplace, travel, sporting goods or other offers are provided exclusively at reduced prices or with other benefits. Starting off with a sports and outdoor goods manufacturer, further partners are in the pipeline or are already being connected quickly and easily via an application interface (API). The contract manager (coming soon) automatically recognizes recurring item costs, such as telephone, electricity or insurance bills and clearly presents them to the user. In this way, the customer keeps an eye on his fixed costs. In the following expansion stage, the recognized contracts are then to be analyzed, the optimization potential shown, and advantageous contract changes automatically carried out according to the customer's specifications.

Horváth & Partners' "one-stop shop" for digital banks and ecosystems

To get from the concept to the finished product within 1.5 years, a holistic approach was necessary. From the beginning it has been clear that only an intensive, interdisciplinary and customer-oriented approach using agile project management would enable a rapid implementation. The experts from Horvath & Partners, Finnoconsult (UX/UI Design), LHBS (Digital Marketing & Market Testing) and BGK (technical implementation, programming) assisted COMECO in terms of strategy, development and the launch of the product and were able to draw on relevant experience. Part of the team was previously responsible for the development of myGeorge at Erste Group, while the entire team under the lead of Horváth & Partners is also behind "Zak", the first mobile-only banking service in Switzerland launched by bank Cler in 2018. Whoever wants to build a successful ecosystem, must be fast and adapt to the market.

“As the general contractor commissioned by COMECO, we orchestrate the respective teams of experts in close coordination with the client and share responsibility for the project budget and results - from strategy to MVP. Our clients highly appreciate this 'one-stop-shop' principle”, says Jörg Schönhärl, Partner and Head of Innovation at Horváth & Partners.

Outlook: The interplay between the "digital" and "analogue" channels is often underestimated

In our articles “Ecosystems - Far From Biology” and “From a Traditional Bank to a Digital Pioneer” we describe why digital platforms and ecosystems have become an integral part of our world by using an implementation example. In our next article we will take a closer look at the interaction of digital channels, e.g. apps and the web, with physical channels, such as branch offices. In the era of digital platforms, physical channels do not lose their importance, instead they are used in new ways.

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If we captured your interest in building platforms or ecosystems, please contact us. We offer a comprehensive portfolio of services in the area of innovation and present further concrete case studies of our customers.